Wednesday, November 10, 2010

A Fiction Expert Scholar Quotes the Invisible Hand As If It Were True

New Book: The 'Invisible Hand' and British Fiction 1818-1860Adam Smith, Political Economy, and the Genre of Realism by Eleanor Courtemanche (HERE):

The blurb:

“Some economic ideas are too interesting to be left to economists. This book argues that Adam Smith’s metaphor of the ‘invisible hand’ – in which selfish economic actions are mysteriously transformed into aggregate social benefits in a capitalist economy – implies an entire spatial and temporal system in which the morality of any particular action can only be understood in the context of society as a whole. The ‘Invisible Hand’ and British Fiction argues that while political economists focused only on the optimistic outcomes of capitalist moral activity, Smith’s model of ironic morality also influenced the work of novelists including Austen, Dickens, Martineau, Thackeray, Gaskell, and Eliot. Their realist novels represent the reconciliation between individual ignorance and systemic overview as much less stable than the economic synthesis, using omniscient narrative voices, multiple perspectives, and humor to depict a wide variety of possible outcomes. Smith shares with the realists a vision of modern society that is structured around a fragile trust in the benefits of unintended consequences.”

CommentThis books apparently is based on a mythical idea that had no part in Adam Smith’s use of the metaphor of “an invisible hand’, namely that:

“Adam Smith’s metaphor of the ‘invisible hand’ – in which selfish economic actions are mysteriously transformed into aggregate social benefits in a capitalist economy.”

In no way did Smith say anything about “selfish economic actions”. Nor did he say these alleged actions were “mysteriously transformed into aggregate social benefits in a capitalist economy”. Markers are not ‘mysterious” as Smith shows in Books I and II of Wealth Of Nations. Markets are no invisible – price signals can be see; if they were invisible nobody would know about prices.

In fact he never said anything about “capitalist economies” (a word unknown to Smith – its first use was in English was1854 in a work of fiction The Newcomes by William Makepiece Thackerary (OED). Smith wrote about ‘the age of commerce’ not capitalism.

Eleanor Courtemanche is almost right in saying: “ Smith shares with the realists a vision of modern society that is structured around a fragile trust in the benefits of unintended consequences.”

There is nothing “fragile” about “unintended consequences”. A consequence is real, not “fragile”; it is whatever happens as a consequence of an action. Whether it is a benefit or not is something else entirely.

Adam Smith’s point in his single example in Wealth Of Nations was that those traders who preferred not to invest abroad (Europe or North America), because they perceived the risks of doing were too risky and who invested locally in Britain, added to the total domestic investment, which in consequence added to local revenues and to employment (the whole is the sum of its parts). This a benefit to employees and employers, particularly in the jobs created for the poorer majority. This was a quantitative benefit.

He said nothing about the qualitative benefits of each specific investment. As Britain at the time, and for decades afterwards, had an economy dominated by tariff protection and outright prohibitions, by other distortions caused by the Act of Apprentices, Trade Guilds, monopolies of many kinds, the Act of Settlement, Drawbacks and Bounties, and the Navigation Acts, it was not clear if domestic investment led to beneficial consequences for everybody in a general sense, and Smith certainly did not presume that it did (see his critique of mercantile laws in Book IV of Wealth Of Nations).

The claim that consequential outcomes were beneficial – even from “selfish acts” – is a wholly invented myth, wrongly attributed to Adam Smith in the 1950s onwards.

4 Comments:

Hurrah! Someone is interested in my forthcoming book! I'm pleased to receive interest from neighboring intellectual fields, though I suspect our methodologies and goals are a little different.

The "invisible hand" concept has a complicated genealogy, some of which I trace in my analysis of Adam Smith's three uses of the term. You're right about the history of the word "capitalism," which I discuss in the relevant chapter. And you're also correct that Smith's use of the term is very different from the 20th century use, such as Hayek's, which made much more use of the idea of "price signals."

I suggest, humbly, that Smith's use of the "invisible hand," as trivial as it appears in the "Wealth of Nations," represents all there is of moral theory in early political economy, and that it profoundly influenced ideas of society as morally complex and ironic in novels at this time. Economics affects other cultural works, just as they can affect economic theory. We "fiction experts" specialize in things that appear to be false (stories, metaphors, ideals of social order) but also, somehow, are true.

Thank you for your response, which I read with interest and which informs me of where your ideas are coming from, and leading to.

A number of English theorists have and are commenting on Smith’s use of the metaphor of an invisible hand (Straus in recent times has come to my notice).

Some attempts are made to justify interpretations by modern economists of “Adam Smith’s use of the IH metaphor” against my insistence that his use conformed to his statements in his “Lectures in Rhetoric and Belles Letters” [1762-3] 1983, p 29 (Oxford UP/Liberty Fund), that a metaphor can have no “beauty unless … it gives due strength of expression to the objects to be described and at the same time does this in a more striking and interesting manner”.

Many of the attributions by modern economists since Paul Samuelson’s textbook, Economics (1948), have been invented, including that the IH metaphor was about the unintended consequence of ‘selfishness’. A wholly fallacious idea when applied to Smith.

You write: “I suggest, humbly, that Smith's use of the "invisible hand," as trivial as it appears in the "Wealth of Nations," represents all there is of moral theory in early political economy, and that it profoundly influenced ideas of society as morally complex and ironic in novels at this time.”

However, Smith’s use of IH metaphor was ignored at the time (1776-90) and for many decades after that, which hardly conforms to: “all there is of moral theory in early political economy”.

Sparse references, solely in passing when quoting from Adam Smith, were made by political economists (the norm was to ignore it) in the last quarter of the 19th century, and were almost absent for much of the first half of the 20th century. There was an oral tradition at Cambridge and isolated appearances of references in print (A. C. Pigou ) in the 20s and 30s (Alexander Gray). Again this was hardly “profoundly influenced ideas of society”.

Both before Smith used the IH metaphor for his purposes (16th-17th centuries) and afterwards, the impetus to use it widely had nothing to do with Adam Smith’s use at all [see my Adam Smith: a moral philosopher and his political economy, chapter 12, 2nd edition paperback, 2010, Palgrave Macmillan, for literary, theological references to 1790; and try Google’ for 19th-20th century references].

A number of English theorists (Straus in recently came to my notice) and used by some economists to justify their interpretations of “Adam Smith’s use of the IH metaphor” against my insistence that his use conformed to his statements in his “Lectures in Rhetoric and Belles Letters” [1762-3] 1983, p 29 (Oxford UP/Liberty Fund), that a metaphor can have no “beauty unless … it gives due strength of expression to the objects to be described and at the same time does this in a more striking and interesting manner”.

Modern economists, since Paul Samuelson’s textbook, Economics (1948), invented the myth that IH metaphor was about the unintended consequence of ‘selfishness’.

You write: “I suggest, humbly, that Smith's use of the "invisible hand," as trivial as it appears in the "Wealth of Nations," represents all there is of moral theory in early political economy, and that it profoundly influenced ideas of society as morally complex and ironic in novels at this time.”

However, Smith’s use of IH metaphor was ignored at the time (1776-90) and for many decades after wards, which hardly conforms to: “all there is of moral theory in early political economy”.

Sparse references were made by political economists in the last quarter of the 19th century, and were almost absent for much of the first-half of the 20th century. Isolated appearances appeared (A. C. Pigou ) in the 20s and 30s (Alexander Gray), which hardly “profoundly influenced ideas of society”.

The impetus to use it widely had nothing to do with Adam Smith’s use at all [see my Adam Smith: a moral philosopher and his political economy, chapter 12, 2nd edition paperback, 2010, Palgrave Macmillan, for literary, theological references to 1790; and try Google’ for 19th-20th century references].

I'll be sure to check out your book, especially since your choice of publishers was so wise!

I agree that the use of the "invisible hand" today is disproportionate to the use of the term in Smith, and that it became much more widespread in the 20th century. However, the underlying idea that there can be secular laws governing a complex society (I get this from Polanyi), and that those laws are somehow morally ironic, came originally from political economy and was deeply influential in other areas of early 19c culture, especially as political economy became a source of intense public interest after 1800.

It might well be the case that this popular interest also represented a slight misreading of Smith, and that within the later tradition he came to stand for a set of values he would not necessarily have endorsed -- and I do suggest a difference between Smith and later political economists, who I think ignored much of Smith's moral judiciousness and sense of irony. The question of why this metaphor has become so widespread in this century is also an interesting one, and one that actually becomes even more interesting if one reads it as a joke or trivial slip on Smith's part, as some commentators have argued.